Savanna Hoffman
Student loans can be a daunting aspect of financial planning, and it's understandable to worry about the consequences of missed payments. While defaulting on student loans can lead to various challenges, such as damaged credit scores, late fees, and wage garnishment, it's important to clarify that you cannot be jailed solely for failing to pay your student loans. The case of Aker, who defaulted on a private loan in 1989, demonstrates that even after an arrest warrant was issued for contempt of court, he was not jailed but fined. This underscores that while there are serious repercussions for non-payment, imprisonment is not one of them.
| Characteristics | Values |
|---|---|
| Can you go to jail for not paying student loans? | No |
| Can you be sued for not paying student loans? | Yes |
| Can you be arrested for not paying student loans? | Unlikely, but possible in rare cases |
| What happens if you default on federal student loans? | Your loan becomes delinquent, you are charged a late fee, your loan servicer will report your loan as delinquent, your loan will go into default, your entire loan balance becomes immediately due (plus interest), your wages may be garnished, you may be taken to court, and your credit score will be affected |
| What happens if you default on private student loans? | Private lenders cannot automatically garnish your wages or bank account, but they can hire a collection agency to collect the outstanding debt, and you may still be sued and have your wages garnished |
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What You'll Learn
- You won't go to jail, but you may face serious financial consequences
- Federal student loans are treated differently to private student loans
- Lenders can sue you for the money you owe
- Your wages can be garnished, but not your tax refunds or Social Security checks
- Ignoring an order to appear in court could result in arrest
You won't go to jail, but you may face serious financial consequences
While you cannot be jailed for failing to pay your student loans, defaulting on your loans can have serious financial consequences. The consequences of default depend on whether you default on federal or private loans. Federal student loans are owned by the US Department of Education, and federal loan servicers have the power of the government to enforce repayment. If you default on a federal loan, your loan servicer will send your loans to the Debt Management/Default Resolution Group, which will then send your loans to a collection agency. The government can garnish your wages, taking up to 15% of your disposable income to repay the defaulted loan, and this will continue until the outstanding balance is paid off. The government can also place a hold on your bank accounts. Furthermore, your loan will be reported as delinquent to the major credit agencies (Experian, Equifax, and TransUnion), damaging your credit score.
Private student loans are owned by private lenders, so the rules are slightly different. Private lenders do not have the same collection powers as the Department of Education. While they can hire a collection agency to collect the debt, they cannot garnish your wages or bank account without a court order. However, private lenders can still sue you for the money you owe, which could result in a court order to garnish your wages. As with federal loans, defaulting on private loans will damage your credit score.
It is important to note that debt collectors are prohibited by law from making harassing phone calls, including threatening you with jail time. If this happens, you can report the debt collector or hire a law firm to sue them. While you won't go to jail for not paying your student loans, it is crucial to understand your options to manage payments and avoid default, as the financial consequences can be severe.
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Federal student loans are treated differently to private student loans
It is a common misconception that you can go to jail for not paying your student loans. While there can be serious consequences for defaulting on your loan payments, jail time is not one of them. Federal student loans are treated differently from private student loans in several ways, including the application process, interest rates, repayment options, and collection procedures for defaulted loans.
Firstly, in terms of the application process, federal student loans require the completion of the Free Application for Federal Student Aid (FAFSA), which determines eligibility for not just federal loans but also other forms of federal student aid, such as grants and work-study programs. FAFSA must be submitted before applying for private student loans as well, but private loans have their own eligibility criteria, application process, and terms and conditions set by banks, credit unions, or other financial institutions.
Secondly, federal and private student loans differ in their interest rates and repayment options. Private student loans typically offer a choice between fixed or variable interest rates, whereas federal student loans have different repayment plans. Private student loans offer more flexibility in repayment, allowing borrowers to make interest-only or fixed payments while still in school, which can lower the total loan cost. Federal student loans, on the other hand, provide four repayment options, including voluntary repayment plans.
The most significant difference, however, lies in the collection procedures for defaulted loans. When an individual defaults on federal student loans, the Department of Education can employ aggressive collection tactics. The loan is first sent to the Debt Management/Default Resolution Group, which then forwards it to a collection agency. Private student loan lenders do not possess the same collection powers as the Department of Education. In the case of default on a private student loan, lenders cannot automatically garnish wages or access a borrower's bank account. They are limited to hiring a collection agency to pursue the outstanding debt.
While jail time is not a direct consequence of defaulting on student loans, whether federal or private, it is important to understand the serious financial repercussions that can occur, such as fines, wage garnishment, and damage to credit scores. It is always advisable to explore repayment options and seek assistance when facing difficulties in repaying student loans.
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Lenders can sue you for the money you owe
While you cannot be arrested or jailed for not paying your student loans, lenders can sue you for the money you owe. This is a civil case, not a criminal one, and you will not face jail time if you lose. However, there are serious consequences for defaulting on your student loan payments. Your loan will be considered delinquent after missing a payment, and you will likely be charged a late fee. If your payment is 90 days late, credit agencies will be notified, and your loan will go into default after 270 days of missed payments. At this point, your entire loan balance, plus interest, becomes immediately due.
If your lender sues you and obtains a court order, your wages may be garnished, meaning that the government can take your student loan payments directly from your paycheck. Private lenders cannot automatically garnish your wages or bank account, but they can hire a collection agency to collect the outstanding debt. In the case of federal loans, the government has the power to garnish your wages without a court order by notifying you that your wages will be garnished within 30 days. They can withhold 15% of your disposable income until the outstanding balance is paid.
It is important to understand your options and rights when it comes to managing your student loan payments and dealing with debt collectors. Keep an eye out for communications from your lender, collection attempts, and court notices to avoid arrest for contempt of court, as in the case of Aker, who was fined $1200 for failing to comply with a court order.
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Your wages can be garnished, but not your tax refunds or Social Security checks
While you can't go to jail for not paying your student loans, there are still serious consequences for defaulting on your loan. One of these is wage garnishment. This means that the government can take your student loan payments straight out of your paycheck. Federal loan holders, in particular, have the power to garnish wages without a court order. They only need to provide notice that wages will be garnished within 30 days. The federal government can order your employer to withhold 15% of your disposable income to repay the defaulted loan until the outstanding balance is paid.
However, it's important to note that there are some sources that mention tax refunds and Social Security benefits as possible sources of garnishment. This may be the case for federal loans, as they have the full backing of the U.S. government in enforcing repayment. Private student loan lenders, on the other hand, do not have the same collection powers. When you default on a private student loan, they cannot automatically garnish your wages or bank account. Instead, they may sell your loans to a collection company, which can be pretty ruthless.
While you won't go to jail for not paying your student loans, you could be taken to court and sued for the money you owe. This was the case for Aker, who defaulted on a private student loan in 1989. The U.S. government sued Aker, and he was eventually arrested, not for the loan default, but for contempt of court due to his failure to respond to legal complaints and summons. He was fined $1,200 for involving the U.S. Marshals Service.
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Ignoring an order to appear in court could result in arrest
While defaulting on student loans can have serious consequences, people who fail to pay are generally not sent to jail. However, if a debtor is summoned to court and refuses to appear, they can be held in contempt of court and arrested.
In the United States, student loan debt collectors are prohibited by law, the Fair Debt Collection Practices Act (FDCPA), from making harassing phone calls. Threatening debtors with jail time during these calls is considered harassment, and debtors can report the debt collector to the authorities.
If a debtor is summoned to court over unpaid student loans and fails to appear, they can be held in contempt of court. Normally, when someone refuses to obey a court order, they are held in contempt of court and arrested. The U.S. Marshals Service, which is part of the Justice Department, is the primary enforcement arm of the federal courts. Courts rely on marshals to serve summonses, subpoenas, and warrants, as well as to make arrests.
In one case, a man was summoned to court over his student loan debt and failed to appear. He was arrested by U.S. Marshals and brought before a judge, who released him but fined him $1200 for the cost of his arrest.
While it is rare for government personnel to be arrested for disobeying a court order, it is possible. In 2019, then-Secretary of Education Betsy DeVos was found in contempt for violating a court order to stop collecting on loans owed by students defrauded by for-profit colleges. The court fined the Department of Education $100,000 and ordered the money to be directed to the defrauded students.
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Frequently asked questions
No, you cannot be arrested or jailed simply for not paying your student loans. However, defaulting on your student loans can have serious consequences, such as damaged credit, late fees, wage garnishment, and even a court summons.
Federal student loans are owned by the U.S. Department of Education, and federal loan servicers have the power of the government behind them to enforce repayment. If you default on a federal student loan, your loan servicer will report your loan as delinquent to the major credit agencies, and your loan will eventually go into default. Once your loan is in default, your entire loan balance (plus interest) becomes immediately due. Additionally, the federal government can garnish your wages without a court order, taking up to 15% of your disposable income until the outstanding balance is paid.
Private student loans are owned by private lenders, so the rules for non-payment are different. Private lenders generally cannot garnish your wages or bank account without a court order. However, they can sue you for the remaining balance on the loan, and if they obtain a judgment against you, they may be able to garnish your wages or bank account to collect the debt.
If you're struggling to make your student loan payments, it's important to take action to avoid defaulting on your loans. Contact your loan servicer to discuss your options, such as entering into a voluntary repayment plan or requesting a deferment or forbearance. You may also want to consider refinancing your student loans to get a lower interest rate or extended repayment term, which can make your payments more manageable.
